How long will housing slump last?

The volume of sales barely budged in August, closing the month at an annualized pace of 6.3 million existing-home sales, the report said. That suggests some possible stabilizing after months of declines in the number of units sold. Home sellers may finally be settling for lower prices rather than letting their homes sit on the market.

Pessimists say a speculative "bubble" had built up and now needs to unwind – possibly over several years.

"As draconian as that sounds, a 5 percent price decline would only reverse one-tenth of the price run-up over the previous five years," Merrill Lynch economist David Rosenberg wrote in a recent report.

"Additional price declines should not be surprising," says Asha Bangalore, an economist at Northern Trust Co. in Chicago. "We have a recession in the housing market.... Usually it takes two to three years to stabilize."

She points to a rising supply of homes on the market. There are now enough homes on the market to meet demand for 7.5 months, up from 7.3 months supply in July, Dr. Bangalore says. The last time inventories surpassed current levels was in October 1992, during the last housing downturn.

Economist Richard DeKaser of First National City Corp. in Cleveland says the decline in sales volume is only about half-way done. So far, he reasons, existing-home sales have fallen about 12.6 percent on a year-over-year basis. "On average, they have fallen on the order of 25 percent," he says. "This suggests we're about halfway there, and by late next year, this should be over."

Though the housing numbers are bad, the rate of decline may be slowing. "The fact is that the decline is showing signs of losing momentum, not gaining momentum," says Bob Brusca of FAO Economics in New York. For example, the decline in the August sales volume was less than economists had been expecting, he says. "We can't say it's a turning point, but we can say it's an inflection point."